R2R Series Blog #13: Modern Entity Closing using S...

elizabeth_milne · ‎10-29-2021

This is Blog #13 in our Record to Report Blog Series. You can find the complete series outlined HERE.

Author: Maximilian Köbler, Global Solution Owner Advanced Financial Closing, SAP

The entity close process is at the core of what finance departments do – but it has mostly been shown to be resource-intensive, complex and involves many manual steps and tedious checks. There are lots of good reasons driving future-oriented finance and IT managers to set up an initiative to modernize, standardize and improve the close. Some of these include:

the need to provide financial statements and steering information in a more timely and accurate manner due to internal and external stakeholders requirements;

saving costs and gaining efficiency for the overall finance function by using automation tools;

improving transparency and visibility for real-time monitoring;

enforcing corporate security and governance standards.

When I worked as a Cloud ERP consultant for large, multinational corporations, I saw complex and heterogeneous systems landscapes. This often led to the situation that the entity close process, which was spread across many systems, teams, and locations, was managed using old-fashioned spreadsheets and non-unified, non-standardized procedures. With SAP S/4HANA Cloud for Advanced Financial Closing (AFC), SAP offers a process orchestration, automation, and monitoring solution that can:

increase the efficiency and speed of the entity close;

provide live insight, with high quality and compliant results;

improve collaboration with features like integrated workflows, notes or E-Mail notifications. These are especially important in times like these, when a global crisis has forced many to work remotely.

But still, an IT solution is only one key piece of the puzzle when it comes to the overall goal of bringing real business value to your organization by making the entity close process more efficient and intelligent. A sustainable improvement to the financial close process extends far beyond an organization’s closing checklists.

Holistic approaches need to consider your corporation's finance and IT strategy, organizational structures, business processes, people and resource situation as well as the IT systems landscape. They also need to take into account what general market trends and future innovations are out there so that an organization is on the right platform to adopt quickly. In this blog, I will highlight, why AFC is the most modern and future-proof choice in the market to enable the modernization, standardization and optimization of your closing processes.

Modern user experience to delight your finance teams

As AFC is a public cloud solution, end users only need a web browser to access the launchpad screen. AFC provides a state-of-the-art user experience, fully aligned with SAP S/4HANA. The screens are responsive and optimized to work on any device – including mobile, tablet and multi-screen workstations. It provides an embedded web assistant to answer questions and link videos and tutorials, useful notifications, translation in 24 different languages, and accessibility. Monitoring dashboards let accountants seamlessly drill down from aggregated KPIs and visual filters, for example from the close progress rate by country, into the lowest level of detail.

Network graphs visualize the dependencies, status and close process flows in a beautiful and intuitively understandable way. AFC provides workflow, alerting and collaboration features to focus accountants on the most relevant activities, avoid bottlenecks in the close process, and know exactly what to do and when to do it. For instance, the system informs users automatically and proactively when their assigned closing tasks are ready to be executed, when they are delayed, and when automatic jobs run into errors. And if you’d rather have the notifications arrive to your email inbox, the system can do that, as well.

Also, companies can tailor the appearance of AFC with the user interface (UI) adaption features like re-naming, showing or hiding attributes and fields, and also by leveraging custom fields as flexible reporting attributes. For instance, many companies use these fields to enable a process-wise reporting of the closing progress, such as Asset Accounting is 72% completed.

Centralized cloud hub architecture to support all systems landscapes

From a process management perspective, it is critical to have one central place where everything comes together, and where all group-wide entity closing activities can be monitored, executed, automated and optimized. But ERP systems landscapes can be very complex and heterogenous, especially in large multinational enterprises. Many companies have used isolated closing task list solutions in the past. Some of those “island” solutions needed to be installed on each single ERP instance and did not provide a central view of the close process across all relevant systems. Whether your landscape consists of a single instance of SAP S/4HANA Cloud or multiple ECC instances or a Central Finance scenario with multiple source systems and one large SAP S/4HANA instance – AFC supports all those situations perfectly, including transitional stages. This can be achieved because AFC is a central orchestrator on the SAP Business Technology Platform. It is the future-proof hub in the net of systems and provides integration with all your supported SAP financial systems.

Flexible closing structures for every organizational setup

Responsibilities within finance organizations can be organized in various ways. Often, there is a clear goal to harmonize and standardize entity close activities as much as possible. But still, this common aspiration can lead to various organizational setups. What we mostly observe is a mixture between central tasks, which are executed by teams that are based in a group’s headquarters, and decentral activities, which are executed by local accountants in subsidiaries. Especially when it comes to country-specific tasks such as tax and inventory valuations as prescribed by local statutory reporting requirements, they are usually executed by local experts. In case there are one or many shared services organizations, tasks are often spread across different geographies, languages and time zones to keep the process running, using a follow-the-sun principle.

No matter how the close is organized in your organization, be it by geographies, by end-to-end processes, by entities, plants or by centers of expertise – or in any transitional stage, AFC provides you with the ability to set up a flexible, tailored closing structure. The screenshot below visualizes a mixture of structural folders by Company Code and by shared tasks per region. The functionality of Task List Models in AFC allows you to define a best practice closing structure for all your subsidiaries once, and then roll it out to each entity, with just a few clicks. Extensive access control mechanisms allow you to manage the authorizations, responsibilities, and usage rights across your individual closing structures within AFC in an easy and very granular way. A combination of multiple standardized and also freely definable reporting attributes allow you to monitor the close progress from all required perspectives.

Full audit trail enabling compliance

If you run the close process with spreadsheets and file share drives, who can guarantee that there is no manipulation, that no one overwrites your data, and everything is really correct and up to date? Are the documentation and change logs audit-proof and secure when the process is checked years later? How can you reproduce approval steps, if they were done via E-Mails, phone calls or chats? AFC can dramatically improve the documentation and the compliance of your entity closing procedures. The system records every step, including changes in master data, configuration and closing tasks.

You can comply with the Sarbanes-Oxley Act (SOX) with the principle of dual control, often called the 4-eyes principle, using embedded workflows on critical closing tasks and requiring a documented reason for status changes. Each change record and detail about completed closing cycles can be called up instantly for audit purposes. The improved quality of your data helps you meet regulatory disclosure mandates and helps ensure everyone involved in the process follows the same documentation standards. With AFC you have a central storage of mandatory standard operating procedures, stored at single task level – instructions, document attachments, notes, comments – all at hand in one place.

Quick-and-easy setup of automation capabilities drives efficiency

One of the key areas of interest for CFOs and finance managers in the context of entity closing is to shorten the close cycle times and accelerate the process. A typical month-end closing cycle takes about 10 days, while a typical year-end closing cycle about 30 working days, according to SAP benchmarks. Shorter closing cycles can help to reduce costs and free up resources and time for more value adding tasks like the analysis of financial results or performing simulations and predictions to support decision making. Efficiency in the entity close can be achieved through multiple levers. As mentioned in the introduction of this blog, there are all kinds of factors like knowledge, resources, organizational structures etc. that have a significant impact – but also the implemented systems of record, the technical processing times of closing tasks, and the right choice of a modern close orchestration solution can massively improve the speed of the process.

AFC is a key building block to achieve an optimized and intelligent close for SAP customers. Efficiency can be achieved through the automation of many closing tasks. For instance, AFC can automatically trigger chains of closing jobs in the background, one after the other, without any human intervention. Dependencies within the close process ensure that tasks are executed successfully before the successor task starts. One task can be run for multiple entities at once, while the automatic task status update and results objects like business logs are created and can be tracked on a single entity level. SAP delivers hundreds of pre-defined closing programs as part of the Best Practices content for AFC, which allow a quick and easy setup of automation capabilities.

Continuous innovation to benefit from the latest and greatest technologies

AFC is the strategic closing orchestration solution from SAP. There is a strong focus and major investment in the future roadmap – all innovations in financial accounting in general, especially those that impact the entity close that are built in SAP S/4HANA are aligned with AFC. SAP collaborates regularly and deeply with customers and partners to rapidly reflect feedback in the offering. The beauty of the public cloud deployment of AFC is that new innovations are immediately available to all customers. Thanks to the continuous innovation adoption paradigm, SAP ships new functionalities in AFC 12 times per year, with the delivery dates following the harmonized cloud calendar for all SAP cloud solutions.

There is a safeguarded stability of closing peak times as updates only happen during time windows which are clearly defined years in advance and outside of typical closing dates. The continuous release paradigm also lowers the TCO and minimizes lifecycle efforts, as IT departments do not have to handle major updates. Instead, the only thing that closing teams need to do is to regularly consult the What’s New section of the AFC documentation to adopt the innovations in your own process and constantly optimize the closing activities using the latest available technologies.

Finance professionals know that the close process is never 100% the same across all cycles. There are always changes in responsibilities, new processes, new entities, new people and also new functionalities of the closing system. AFC encourages organizations to continuously adopt, but also to actively look at optimization potential, identify delays, bottlenecks and errors using AFC’s modern embedded analytics functions to become even faster, more efficient and achieve a world-class entity close process.

Call to action: To learn more about process efficiency in the Close, join us and customers at the virtual event for Financial Close and Reporting.